Mortgage fraud has been on the decline in Canada in recent years thanks to tougher regulations, better training and new technology, the head of Canada’s largest private mortgage insurance company said Wednesday.
“The industry takes misrepresentation very seriously and as a group we’ve all taken some very strong actions over the last few years to reduce instances of misrepresentation and fraud in the industry,” Stuart Levings, chief executive officer of Genworth MI Canada Inc., said in a Wednesday conference call with analysts.
Mr. Levings’s remarks come a week after Home Capital Group Inc., a major Canadian alternative mortgage lender, revealed that it had suspended 45 mortgage brokers after it uncovered evidence that some borrowers had been approved for mortgages with fake employment letters that overstated their incomes.
Home Capital has said its mortgage insurers conducted audits after the company disclosed problems with some of its mortgages and it was confident that its loans would be covered by insurance, given that none of its employees were complicit in any fraud.
Mr. Levings declined to discuss Genworth’s dealings with Home Capital, but he said fraudulent mortgage applications have become less of a problem for the mortgage industry in the wake of the global financial crisis.
As a major mortgage insurer, Genworth uses highly trained underwriters, along with a special investigations unit and “third-party tools,” to act as “a second set of eyes” in order to uncover issues with the mortgages it insures, Mr. Levings said.
The company also provides “red-flag training” for the lenders it works with. “We don’t see a lot of [fraud] getting through to the approval process,” he said. “You want to catch it at the front door.”
The company rejects roughly 7 to 10 per cent of all loans, he said, while others go back and forth between the lender and insurer to work out any issues with the application.
Genworth investigates claims on a case-by-case basis, but it is committed to paying all valid claims to lenders if a mortgage defaults, Mr. Levings said. The commitment is crucial to the company’s plans to increase its share of the Canadian mortgage insurance market, which now stands at close to 35 per cent.
Genworth could refuse to pay out a claim if it finds “unmitigated, recurring material deficiencies in the underwriting process,” Mr. Levings said, something that he added was “a very rare occurrence.”
“On balance, the quality of the loans in the market as a whole is very strong in today’s environment,” he said.
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